Last week, we published the first of a two-part summary of the major impacts on SMEs of the 2017 Federal Budget. Here, we overview five more important changes.
7. Restrictions on depreciation deductions
From 1 July 2017, deductions for depreciation of plant and equipment will be restricted to outlays actually incurred by the taxpayer who owns the residential rental property. The reason that this measure has been brought in is the concern that successive investors are claiming depreciation over the asset’s actual value. The purchase of plant and equipment, which is included in the purchase of the property for subsequent investors, will be reflected in the CGT cost base of the property.
There is no change to taxpayers who purchase plant and equipment for their rental properties; they will still be able to claim a depreciation deduction for the asset. However, any subsequent owners of the property will not be able to claim any deductions for those pieces of plant and equipment that were purchase by the previous owner.
These changes apply prospectively from the 9 May this year. This means that taxpayers who purchased properties before this date will still be able to claim depreciation for plant and equipment that was originally purchased by other taxpayers.
8. Travel expenses for residential property – no deduction
From the 1 July this year, taxpayers will no longer be able to claim a deduction for travel expenses. Previously, tax payers have been claiming travel expenses for the inspection of their properties or collecting rent. The government however believes that this deduction had been abused by people who claimed 100 per cent of travel expenses when there has been a private purpose to the travel as well, or not apportioning private travel correctly.
9. Increased CGT discount on affordable housing investments
To encourage investment in affordable housing, these types of investments will receive a higher CGT discount – from 50 per cent currently to 60 per cent. There will be qualifying rules such as the rental being below private market rate and the housing must accommodate those in lower socio-economic brackets. The investor must hold the investment for three years. Resident individuals will also receive the higher CGT discount when the capital gain flows through a managed investment trust.
10. Foreign investors CGT changes
From the 1 July, the foreign residents CGT withholding tax will be increase from 10 per cent to 12.5 per cent and the CGT withholding threshold for foreign residents will be reduced from $2 million to $750,000. This will mean that a lot more taxpayers will be required to obtain foreign resident capital gains clearance certificates when they sell properties over $750,000.
Foreign and temporary residents will also be denied access to the CGT main residence exemption.
11. Major bank levy
From 1 July, all of the major banks will be required to pay a levy of 0.06 per cent of their “licensed entity liabilities” that exceed $100 billion. This levy will raise some $6.2 billion from the largest five banks. From a consumer perspective, the ACCC will be tasked with monitoring residential mortgage pricing (fees and interest) by way of an inquiry until 30 June 2018. Any changes to fees and interest in that time will need to be explained. With respect to small business, it is yet to be seen whether this levy will be passed on by the banks.
Daryl Corpe, Partner and Chairman, Ulton